Fundamental analyst warns investors that 90% of crypto startups will fail


Investing in the crypto space has always been fraught with high risk, high casualty rates, but just enough of an allure that investors have been willing to throw caution to the wind in hopes that good fortune will befall their efforts. Yes, there have been digital assets that have produced “10X”, “100X”, and even “1,000X” multiples, if only you had gotten in on the ground floor at rock bottom prices. The truth of the matter is that such successes are extremely rare, and one fundamental analyst is warning investors to wake up.

The analyst, who goes by the moniker of “Wolf of”, has a Twitter following that receives his focused look at the fundamental side of cryptocurrencies, and in his latest tweets, he is warning his followers that the vast majority of cryptocurrencies and their related development projects will fail, leaving investors to deal with a complete loss of their invested capital.

Wolf suggests that investors have assumed the role of venture capitalists, where potential failure rates can reach 90% at times. The one or two in ten projects that succeed will need to produce high returns in order to cover the failure losses and then some, but most investors are totally oblivious to the risks involved. Many are purely speculating out of a desire to get rich quickly or from a fear of missing out on the next great innovative wave.

According to Wolf:

No matter how these small projects are financed (via an ICO, pre-mine, fair launch, dev reward, self-funded etc.), they are essentially young startups in a completely unproven technological field. Such startups are known to have an extremely high failure rate of about 90%.

These early startups fail for a number of reasons. Wolf explains: “Early stage startups fail because the promised technology turns out to be impracticable, because they cannot find a product-market fit, because their teams fall apart, because they go bankrupt due to mismanagement, etc.” The failure rate in the crypto space has also been exacerbated due to the pervasiveness of outright fraud, various Ponzi schemes, and a host of what have turned out to be elaborate exit scams.

Initial Coin Offerings (ICOs) have raised billions of dollars in new funding for crypto development efforts over the past few years. A twist on crowd-funding techniques, ICOs have done little to comply with security registration laws, but regulators are now cracking down across the globe. As a result, ICOs are morphing into STOs (Security Token Offerings). Greater adherence to investor protection legislation may be a good thing, but investors still need to perform the necessary due diligence to protect themselves.

Although the current crypto funding milieu is changing, it is still reminiscent of the crazy days after the advent of the Internet. Investors in those days threw tens of millions of dollars at any potential idea that was associated with the web, even if the idea had not been proven in concept with an initial prototype. When the bubble burst, venture capitalists were caught with a multitude of failures in their respective portfolios. Most firms moved on to less risky funding venues, leaving a funding vacuum to fill.

The crypto “funding vacuum”, if you will, has attracted an abundance of “new age” investors that have no knowledge of the Internet craze or how badly many people crashed and burned. The “Wolf of Qtrade” is obviously one analyst that feels obligated to alert the throngs of uninformed speculators be to be more careful. His advice is simple: investors should only invest what they can afford to lose and should “build their portfolio around high-cap coins such as Bitcoin and Ethereum.”

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